The processes of setting and communicating prices are two of the most fundamental roles of a business. Price affects a business’s sales, revenue, investment returns, and ultimately profit. As a result, the term “price fixing” has a strong negative connotation, and deservedly so. Restrictions on price competition represent actual threats to the economy, and they carry the possibility of harsh penalties. However, the term sometimes may be misused in reference to pro-competitive, legal conduct, which actually may be beneficial for businesses and consumers.

In a recent decision, an administrative law judge dismissed three illegal price-fixing charges brought against McWane, Inc. by the Federal Trade Commission, but upheld four charges alleging that it illegally excluded competitors from the market.

The privately-owned McWane, Inc. is the nation’s largest manufacturer of iron pipe and other products used in water distribution and wastewater treatment. In January 2012, the FTC Complaint accused McWane of orchestrating a complex scheme in which it worked with competitors Star Pipe Products Limited and Sigma Corporation to raise and stabilize prices. The FTC also alleged that a trade group was created to assist in this illegal scheme by serving as a clearinghouse through which the companies could exchange pricing information.

In his opinion, the Administrative Law Judge, D. Michael Chappell, rejected those charges, stating that “accepting complaint counsel’s conspiracy theory depends on accepting numerous assertions, assumptions, and inferences that are not sufficiently grounded in evidence.” McWane set its prices independently “in order to beat prices being offered by its competitors, which is a pro-competitive purpose,” Judge Chappell wrote. The judge also ruled, however, that McWane illegally pressured distributors to exclude Star Pipe from the domestic ductile iron pipe market and entered into an illegal agreement that led Sigma to abandon efforts to enter the market.

To discuss these and similar issues, please contact Bill Sinclair, head of STSW’s commercial litigation group, at 410-385-9116 or bsinclair@mdattorney.com.